CorrieDriebusch

--The reasons for the lowered outlook not seen having long-term impact on Forest Labs

--Lexapro shares fall 3.2% after reduced estimates

(Adds additional details throughout, including generic-pricing and market-share information in the second paragraph, updated share price in the fifth paragraph, Lexapro's 2012 and 2011 sales in the seventh paragraph, information about generics in the ninth and 10th paragraphs and analyst commentary in the 11th paragraph.)

Forest Laboratories Inc.
FRX, +3.54%
reduced its fiscal-year earnings guidance because of lower-than-expected branded Lexapro sales and more aggressive pricing for the authorized generic version of the antidepressant following the March loss of the drug's patent exclusivity.

The New York-based drug maker said sales were hurt as the authorized generic had to be priced at a discount of 60% to 65%, below the 30% cut that Forest had expected. Even then, the company was able capture only about 40% of the generic market, below the anticipated 44%.

The news comes as Forest has to deal with criticism from activist shareholder Carl Icahn.

While tougher competition on Lexapro will weigh on the drug maker's earnings this year, the long-term impact on the company is modest if not immaterial, analysts say, as investors already were anticipating income from Lexapro effectively disappearing next year.

Shares were down 3.2% at $34.54 in recent trading Monday. The stock is still up 14% year to date.

For the fiscal year ending in March, Forest Labs reduced its per-share earnings forecast by 25 cents, to between 95 cents and $1.10. Its estimate for Lexapro sales was slashed to $215 million, compared with its earlier view for $250 million. The company also anticipates a generic substitution rate of 88%, up from its initial projection of 84%.

Forest Labs also cut its expectations for royalties earned on authorized generic sales to $60 million from $115 million as both the brand price discount rate and market share have been sharply lower than expected.

Lexapro sales totaled $2.1 billion in fiscal year 2012, accounting for a little under half of the company's total sales for the year. In 2011, sales of Lexapro accounted for 55% of the company's total sales.

In April, the drug maker reported that fiscal fourth-quarter earnings fell 40% as generic competition to Lexapro hurt sales. Sales of the depression treatment fell to $355.8 million in the quarter.

The quarter represented the first foray into the post-Lexapro era for Forest Labs. The drug lost patent exclusivity for its main money maker earlier this year, and in March Mylan Inc.
MYL, +0.30%
launched the authorized generic version of Lexapro, from which Forest Labs receives sales-based royalties.

Also in March, Teva Pharmaceutical Industries Ltd. (TEVA, TEVA.TV) received approval to market a generic version of Lexapro for adults.

Lexapro "represents limited-duration cash flow to Forest at this point and has little bearing on the long-term growth profile of the company," said Chris Schott, an analyst at J.P. Morgan. With additional competitors expected to enter the Lexapro market in September, the impact from Forest Labs's lowered guidance essentially is limited to the drug maker's fiscal first and second quarters and should have little impact on the company moving forward, Mr. Schott said.

More pressing to Forest Labs is its recent new-product launches, investment plans and renewed pressure from activist investor Carl Icahn, who recently unveiled plans to nominate less than a majority of candidates to Forest's board. The plans came nearly a year after a prior effort to gain board seats failed.

Separately, Forest Labs said Monday it has stopped distribution of a minor product, a hypothyroidism drug made by another company, amid Food and Drug Administration concerns about quality controls at a plant where the drug is made. Forest said an extended disruption in supplies of the drug--called Levothroid--could cut earnings by three cents for the fiscal year.

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